O.C. Bankruptcy Lawyers Ask Judge to OK $48-Million Bonus

Lawyers on Monday asked a federal judge to approve a $48-million bonus they say Orange County owes them for handling the county’s complex bankruptcy litigation.

The request, filed by the law firm of Hennigan, Mercer & Bennett, is in addition to the $26 million in hourly fees the firm has already collected.

If approved by U.S. District Judge Gary L. Taylor, it would boost the firm’s total compensation to 8.5% of the $865 million it won in settlements with Merrill Lynch & Co. and other companies accused of helping cause the county’s 1994 financial collapse.

Orange County plans to fight the request, said County Counsel Laurence M. “Lon” Watson, who had not seen the court documents filed Monday. The judge scheduled a Sept. 13 hearing on the matter.

J. Michael Hennigan, a senior partner in the firm, defended the payout request, citing the difficulty and success of the litigation. There was no question about the firm’s performance during 4 1/2 years of service, he said.

“At the end of our assignment, I think it was universally agreed that we performed well,” Hennigan said. “However, when we came to discuss what that meant as to the contract, no one was prepared to discuss it.”

The original contract was approved by former state Treasurer Thomas W. Hayes, who was appointed by the U.S. Bankruptcy Court in Santa Ana to oversee the effort to recoup money that the county government and other local agencies lost in the bankruptcy.

But Hayes has rejected their request for a $48-million bonus.

“I considered their application and I had the discretion to reject it, and I used that discretion,” Hayes said Monday. Hayes also questioned whether government agencies could afford the additional payout.

The $48-million figure was arrived at by retired federal Judge John G. Davies, who at the law firm’s request analyzed its compensation.

“[The judge] chose this, we had nothing to do with it,” Hennigan said.

In court documents, Davies said he considered the bonus fair and reasonable.

After the county settled with Merrill Lynch, Davies served as mediator to more than a handful of additional actions he described as “unusual and complex” filed by the county against securities corporations from the bankruptcy.

“This type of fee enhancement,” Davies said in response to the laywers’ request, “provides proper incentives to lawyers working on large, complex, and risk-filled cases. If lawyers in cases like these are paid only their ‘straight hourly rates,’ they have less reason to maximize results for clients or to expedite resolution.”